Depressed individuals often fail to react to emotionally significant stimuli. The significance of this pattern of emotional dysregulation in depression is poorly understood. In the present study, depressed and nondepressed participants viewed standardized neutral, sad, fear, and amusing films; and experiential, behavioral, and physiological responses to each film were assessed. Compared with nondepressed controls, depressed participants reported sadness and amusement in a flattened, context-insensitive manner. Those depressed participants who reported the least reactivity to the sad film exhibited the greatest concurrent impairment. Prospectively, the depressed participant who exhibited the least behavioral and heart rate reactivity to the amusing film were the least likely to recover from depression. Loss of the context-appropriate modulation of emotion in depression may reflect a core feature of emotion dysregulation in this disorder.